(Bloomberg) -- With very few bulls left on Wall Street, fast-money quants are loading up on stocks at a pace not seen since the start of the pandemic.
Traders, forced to buy stocks as the great inflation trade showed signs of crumbling, are now overweight equities for the first time this year and momentum signals suggest that they may have to snap up more equities soon, Deutsche Bank AG analysis shows.
Commodity Trading Advisors, which take long and short positions in the futures market, had to buy an estimated $146 billion of stocks in the past month amid a CPI-reading fueled rally -- the largest buying spree since March 2020, according to an estimate from Scott Rubner, a Goldman Sachs Group Inc. managing director. The cohort may also have to buy an additional $13 billion worth of stocks if the market stands still this week, the bank said.
“If equities hold at current levels and/or volatility declines then they will add to their exposure,” said Parag Thatte, a strategist at Deutsche Bank. “CTAs lower their exposure when volatility is high and so if volatility subsides their allocations should go higher.” The US Thanksgiving holiday on Thursday usually makes for a quiet week of trading.
Quants were caught off guard following the latest cooler-than-expected CPI print as it sparked a cross-asset rally and a stock-buying spree. After the rally, CTAs’ equity allocation jumped to around 15% but has peaked at as much as 40% to 50% in the past, according to Deutsche Bank.
Societe Generale SA data show that rule-based traders are down 5% over the last two weeks but are still on track to close out their best year on record, with a gain of 21% so far.
For most of 2022, trend followers’ short bets on stocks and bonds were a winning trade as the Federal Reserve turned to aggressive tightening to tame rising prices. A change of course in the inflation regime may mean a slowdown of those historic gains and a return to the choppy market trends of the pre-pandemic era.
For Andre Honig, executive director at the $6.8 billion hedge fund Transtrend, the market reversals following the latest inflation data are no reason for an end to the stellar gains the cohort has seen. “What is more important for a strategy is not getting caught wrong-footed in assessing market risk after this type of market action,” he said.
©2022 Bloomberg L.P.
Fast-Money Quants Go Long on Stocks for First Time This Year - BNN Bloomberg
Read More
No comments:
Post a Comment